The Two Key Microeconomics Concepts - Essay Example

Due to the size of the company, the firm has to be smart about its expansion plans. The reason the firm has to adequately plan its strategy is due to the competition. The competition in consumer products is intense. The positioning strategy of the company can help the firm choose a way to present the company without drawing too much attention from the industry leaders. CPI should not pose a threat to firms such as Proctor and Gamble. The firm can be positioned in a segment of the market where it would not have to compete directly with the market leaders. The best way to achieve that goal is by implementing a differentiation strategy. A variable that can help the company achieve a differentiation strategy is the quality of its products.

A second important economic variable that CPI has to consider is pricing. The pricing strategy is very important because price determines the ability of a company to achieve superior profits. Underpriced products may sell well but their overall effect on the profitability of a company is not optimum. CPI has to study the market prices of all the products it sells. In a pricing study, the firm should analyze the market price of each product in the US, internationally, and online. Selling the products at a premium price can help the firm differentiate from low-cost producers. The price structure of the company should be sufficient to pay off all variable and fixed costs while at the same time leaving a hefty surplus of profits. The profit margin of the enterprise should be equal to or better than the industry average. A database that provides the industry business ratio norms is the Dun & Bradstreet database (Dun & Bradstreet, 2011). The price of a product affects the relationship between demand and supply. According to the law of supply and demand a product’s demand will go up if the price of the good is lowered (Investopedia, 2011).